University News

City looks to renegotiate tax agreement with the University

By
City & State Editor

Colleges and universities in Providence may have to contribute more revenue to the city as part of a sweeping series of measures to address the city’s two-year, $180 million budget deficit, Mayor Angel Taveras announced yesterday.

The announcement came on the heels of a report issued by the Municipal Finance Review Panel, which Taveras convened to examine the city’s finances in January. The report stated that city officials should consider taxing University dormitories and establishing a mandatory student residence fee. It also suggests increasing the amount the University voluntarily contributes for city services and requiring students to register their cars with the city.

Taveras announced he would demand new agreements with currently tax-exempt universities and hospitals. “There is a critical need for tax-exempt property owners to contribute more,” the report states.

In 2009, when the city’s deficit was $17 million, former Providence Mayor David Cicilline ’83 proposed similar measures. His proposals met heavy opposition from the University and its allies and ultimately died in the state legislature.

But this time around the city’s financial woes are more dire, and the new mayor is willing to take a hard line on fiscal cuts.

Thursday’s press conference was the first Dan Egan had heard of the suggested fees.  As the president of the Association of Independent Colleges of Rhode Island — a group that lobbies for the state’s private educational institutions — he said it was likely the first Brown administrators had heard of the recommendations as well.

 

Hurricane strength

Providence faces a deficit of $110 million next year and $70 million this year. “I thought we were maybe at a Category 3 hurricane,” Taveras said Thursday at a press conference. “We’re a Category 5. It’s much worse than I expected.”

He projected broad-based spending reductions, beginning with immediate 10 percent cuts to his salary and his office’s budget. The report suggests further areas for cuts, including negotiations with currently tax-exempt institutions in the city.

Administrators from Providence universities and hospitals have been discussing fiscal issues with city officials since Taveras took office. The city will ask for “additional assistance” from these currently tax-exempt institutions, Taveras’ Press Secretary David Ortiz wrote in an e-mail to The Herald. “Everyone must share in the sacrifice to put Providence back on firm financial footing,” he wrote.

“We appreciate how challenging the financial situation is in the city — we have just been through two years of significant reductions,” wrote Marisa Quinn, vice president of public affairs and University relations, in an e-mail to The Herald. But the University had not heard about most of the report’s recommendations until it was released. “We need to review the report thoroughly and understand better the mayor’s interest in and receptivity to the range of recommendations offered,” she wrote.  

 

Exempt

Despite demanding some of the nation’s highest property tax rates from homeowners, Providence imposes no property taxes on buildings under academic use by non-profit institutions. Instead, under a 2003 agreement, these institutions contribute payments to the city in lieu of taxes. Between 2005 and 2009, the University made between $1.08 million and $1.1 million of these payments annually. Universities do pay property taxes on buildings not used for educational purposes, totalling $3.34 million for Brown for the 2009 fiscal year.

Given the city’s financial woes, officials say current payments are simply not enough. Though the total value of property owned by exempt institutions is about $3 billion, the city receives only $1.9 million in voluntary payments each year, according to the report. “Hospitals and colleges need to increase or begin to make payments for city services,” it reads.

But according to Egan, non-profits are worth more to the city than their contributions suggest. Beyond the stated $1.9 million contribution — and an additional $6 million from properties under non-educational use — he said Brown and peer institutions are key economic engines in the state.

Egan said he considers Thursday’s report a statement of options, not recommendations, for the mayor. “We understand what (Taveras) is up against,” he said. But especially with regard to student residency fees, Brown, Johnson and Wales, Providence College and the Rhode Island School of Design “are not supportive of anything that adds costs to the student.”

 

‘Fair Share’

In 2009, Cicilline introduced two budget-cutting measures similar to the residence fee and property tax raise cited in Thursday’s report.

He recommended what he called “Fair Share” legislation, which would have levied a student tax of $150 per semester or $100 per trimester for all out-of-state students.

A second bill outlined a property tax for non-profits. The legislation would have taxed hospitals and private colleges and universities for property valued at over $20 million, up to 25 percent of the standard tax rate.

University administrators spoke out strongly against the proposals at that time.

“Considering past and anticipated budget reductions, we would be loathe to ask the University community to shoulder even greater sacrifices — particularly not our students and their families, who work hard to plan and save for higher education,” wrote President Ruth Simmons in an e-mail to the campus community in June of that year. Simmons urged members of the Brown community to lobby General Assembly leadership to maintain the University’s tax exemption.

 

A darker picture

Since 2009, the city’s finances have continued to deteriorate. According to yesterday’s Providence Journal, a Jan. 31 quarterly assessment of the city’s fiscal outlook by Cicilline’s former administration director estimated a $587,000 surplus for the current fiscal year. Cicilline parried accusations yesterday that he deliberately obscured the state of the city’s finances while in office.

Taveras has already ignited controversy over his efforts to address the city’s deficit. Last Thursday, he issued dismissal notices to all Providence teachers. He plans to announce four to six school closings next Monday and to alert teachers at closed schools if they are still employed in the next two weeks. He has already implemented a hiring freeze for city positions and has laid off 13 city workers.

In addition to shortfalls in its operating budget, the city also faces looming obligations to its employees in the form of pensions and retiree health care benefits. The city’s pension plan faces an unfunded liability — the gap between the money promised its pensioners and the funds set aside for that purpose — of more than $800 million. The unfunded liability for its retiree health plan is nearly $1.5 million. The Providence Public School District faces a $40 million budget gap.

Taveras has not endorsed all of the report’s recommendations. But Taveras’ director of administration Michael D’Amico chaired the five-person panel, indicating collaboration with a top city administrator.

D’Amico is in charge of the city’s financial decisions and day-to-day operations. And, based on Taveras’ tone, he may soon oversee extensive cuts.

Decisive action is needed to “save our city from financial catastrophe,” Taveras said at yesterday’s conference.

 

— With additional reporting by Herald staff